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When a landlord and a pair of tenants enter an agreement that works for both sides but happens to be illegal, combat and litigation are sure to follow. And now , after a dozen years, the happy arrangement involving 155 Riverside Drive has been totally dissolved by the highest court in New York state as a violation of public policy.

When in 1996 Victoria Munroe and Eric Saltzman agreed to pay $2,000 a month or $675 more than the legal rent established for their rent stabilized apartment, the landlord, Riverside Syndicate, got a good deal. But it was a deal for the tenants too, and there was a reason for their willingness . Munroe and Saltzman, who occupied three apartments combined into one, had another residence in Cambridge, Massachusetts. Under New York's rent regulations, the landlord could have evicted the couple by establishing that they did not occupy the premises for more than 183 days (six months) a year. So the tenants were willing to overpay, if, in return, the landlord was happy to overlook the primary residence issue.

The agreement also resolved the parties' sublease dispute in Housing Court. There, a stipulation (agreement) provided that the tenants agreed to '"waive all right to challenge the legality of the rent," and that '"regardless of their primary residence, the tenants may remain as the rent stabilized tenants." The agreement also provided that "if the apartments were deregulated, the landlord offer a renewal lease every two years at no more than an 8 percent increase."

Four years after the stipulation was entered, the apartment was deregulated, and the parties agreed to a succession of two-year leases with increases of 8 percent, an amount in excess of the maximum allowable if the apartment had remained rent stabilized.

However, in 2004 the landlord sought a court declaration that the agreement was void and unenforceable. As rents continued to rise, Riverside may have reasoned that, if it could set aside the stipulated agreement by showing that it was never valid, the syndicate would reclaim the apartment and rent it for much more than what Munroe and Saltzman were paying.

Giving Up One's Rights

When the litigation reached the Court of Appeals, the fourth court to be involved and the state's highest court, the judges decided unanimously, "Agreements like the one at issue here distort the market without benefiting the people the rent stabilization laws were designed to protect." In other words, though the tenants had voluntarily waived the protection of rent stabilization, that waiver defeated the protective purpose of rent stabilization.

Although there are in law certain rights that can be waived, such as confession without lawyers, others, such as rent stabilization or child labor laws, cannot be surrendered. Judge Robert Smith wrote, "An agreement by tenants to pay an illegal rent for a rent-stabilized apartment, in exchange for an agreement by the landlord to let the tenants use the apartment as a second home, is void and cannot be enforced by either party."

In addition, Smith ruled for the entire court, "The agreement is, on its face, one to 'waive the benefit' of rent stabilization, and is therefore void. ... In exchange for an illegal rent, the landlord agreed ... not to enforce its rights under the Rent Stabilization Code, to 'recover possession' of a 'housing accommodation' ... not occupied by the tenant ... as his or her primary residence."

Discussing the public policy issue, the opinion said, "Such an agreement allows a tenant who already has one home, and who is able to pay more than the legal rent for a second one, to use the law as a means of getting that second home in perpetuity at a bargain price, ... and would violate the fundamental policies and purposes of the statutory rent regulation scheme."

The Court of Appeals concluded that the agreement as to both parties was invalid from the beginning and that neither party can rely on it. Without specifying what the next steps would be, the court indicated that this matter would be returned to the lower courts where further litigation might result in refunds to the tenants and also possibly to returning the apartment to rent stabilization. It seems clear, however, that unless the tenants can establish that the Riverside Drive home is their primary residence, they will lose the apartment. And the winner is: the landlord.

Emily Jane Goodman is a New York State Supreme Court JusticeÂ

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